On May 18, 2016, President Obama and Labor Secretary Perez announced the long-awaited publication of the Department of Labor’s Final Rule regarding the overtime provisions of the Fair Labor Standards Act. These sweeping changes will require employers to make significant modifications to their current wage-and-hour practices.

Key Provisions

  • The Final Rule becomes effective December 1, 2016.  
  • The minimum annual salary for exempt employees was increased from $23,660 to $47,476 per year (or $913 per week), which is equivalent to the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region (currently, the South). California Employers: This is higher than California’s current salary threshold.
  • Employers may use nondiscretionary bonuses and incentive payments, including commissions, to satisfy up to 10 percent of the minimum salary level for white-collar employees, but such payments must be made to employees at least quarterly.
  • The total compensation level for highly compensated employees was increased from $100,000 to $134,004 annually, which is equivalent to the 90th percentile of earnings of full-time salaried workers nationally.    
  • The Department of Labor will automatically update the salary and total compensation thresholds every three years, beginning January 1, 2020.  These updates will ensure that the minimum salary levels remain consistent with the 40th and 90th percentiles set forth above. The Department of Labor will publish a notice of the new thresholds in the Federal Register at least 150 days before the updated amounts take effect; this information also will be available on the Wage and Hour Division’s website.
  • The Final Rule does not change the existing standard duties tests for white-collar employees under the executive, administrative or professional exemptions or the minimal duties test for highly compensated employees.  

These new requirements will impact an estimated 4.2 million currently exempt employees. With little more than six months until the Final Rule takes effect, employers must begin compliance planning now.